4 Spitzzeile Titel It’s Not all the Fed’s Fault Reserve Bank of India Governor Raghuram Rajan has lambasted US monetary policy for not taking emerging markets into consideration.

MNI India Business Report - February 2014 Reserve Bank of India Governor Raghuram Rajan has lambasted US monetary policy for not taking emerging markets into consideration. While it’s true that the Federal Reserve doesn’t appear at all sensitive to the problems their domestic policies cause, unwinding quantitative easing is a key step on the path back to normalisation. The currency has outperformed most other emerging markets since Rajan took office. While growth remains poor, the current account deficit has shrunk, helped by curbs on gold imports, and foreign exchange reserves have increased. Financial markets have now turned their attention to perceived more vulnerable countries such as Turkey or Argentina. As emerging markets around the world were once again thrown into turmoil this year, some expected, or hoped, that the US Fed would hold back on their tapering of asset purchases which began in December. It was not to be and the Fed trimmed purchases of treasuries and mortgage backed securities to $65 billion. India, though, is by no means out of the woods and while the central bank can better formulate its policy framework to attempt to eradicate the current damaging high rate of inflation, it is the government that needs to take action to ensure India continues to grow. With the May elections looming, India could yet find itself back in the firing line. Many erupted with consternation that in a statement accompanying the move, the Fed didn’t even mention emerging markets. The Fed would argue that its remit is domestic, although clearly its actions reverberate globally. Philip Uglow Chief Economist MNI Indicators “International monetary co-operation has broken down,” said Rajan in a recent interview. “Industrial countries have to play a part in restoring that [cooperation], and they can’t at this point wash their hands off and say, we’ll do what we need to and you do the adjustment.” Still, the Fed’s tapering has been flagged well in advance and monetary policy in the US needs to adjust at some point. I doubt there would ever be a good time to turn off the monetary tap. Since taking over as Governor of the RBI in September, Rajan has made all the right noises for global markets. He has set his sight clearly on inflation and raised official interest rates three times since coming to office, most recently in late January, when against the judgement of his colleagues, he decided to hike the policy rate by 25 basic points to 8%. Importantly, his decisions have never been taken with a sense of panic but he has always focused on the long-term goals - the move to introduce an inflation targeting regime is a case in point. 5

6 Spitzzeile Titel Executive Summary The MNI India Business Indicator fell to 58.2 in February from 63.4 in January. Nine out of the 15 current conditions indicators included in the report fell in February.

MNI India Business Report - February 2014 The MNI India Business Indicator fell to 58.2 in February from 63.4 in January, a decline of 8.2% on the month. The worsening was led by a fall in business conditions among service sector companies. Expectations for business conditions in three months’ time slipped to 69.5 in February from 72.0 in January, the lowest since October. Nine out of the 15 current conditions indicators included in the report fell in February. For business expectations in the next three months, four indicators fell from the previous month. Following a pick-up in January, Production eased to 62.0 in February from 64.4 in January, although this was still 11.5% higher than last year. The New Orders Indicator declined 2% on the month to 62.3 in February from 63.6 in January, led by construction and service sector companies. The Export Orders Indicator also fell to 59.8 in February from 61.4 in January, the lowest since November. since October and they rose to 55.6 in February from 54.4 in the previous month. Many companies continued to complain about the high rate of inflation that was adding to their costs. The Input Price Indicator increased to 73.0 in February from 69.8 in January led by increases among both services and manufacturing firms. The Prices Received Indicator fell to 56.2 in February from 60.6 in January, the lowest level since October, although still at a relatively high level. The Financial Position Indicator rose to 69.3 in February from 68.2 in January, the highest since November and well above the 56.3 posted in the same month a year earlier. The Interest Rates Paid Indicator increased to 67.3 from 60.5 in January. The decline in interest costs paid by companies over the past two months was reversed in February following a hike in official rates by the Reserve Bank of India. Following a sharp rise in the previous month, the Productive Capacity Indicator fell back a little to 56.1 in February from 58.0 in January. The Effect of the Rupee Exchange Rate Indicator remained broadly flat at 44.2 in February compared with 44.3 in the previous month as companies continued to report that the current level of the rupee was hurting their business. Order Backlogs accelerated to 39.8 in February, up from 35.6 in January. The indicator has fallen sharply over the past year as the economy has slowed considerably, although recovered partially in February, after hitting a record low. The indicator measuring the Availability of Credit fell from 56.8 in January to 54.9, a decline of 3.3% on the month. The indicator has remained broadly stable since last year, averaging 53.1 in the past twelve months. Between January and February, the Employment Indicator fell from 51.8 to 50.8, as the indicator for manufacturing companies fell into contraction. The Inventory level of Finished Goods Indicator accelerated further to a new series high of 64.9 compared with 62.1 in January. Supplier Delivery Times have steadily lengthened 7

w Consumer price inflation eased to a two year low of 8.8% in January. This was led by an easing in food price inflation, which accounts for almost half of the CPI basket, to 9.9% from 12.2% in December.

10 Spitzzeile Titel Economic Landscape Latest economic data has provided a ray of hope from the economic gloom that has surrounded India. Consumer price inflation hit a two year low and the trade deficit continued to fall. Industrial production, though, has been persistently weak.

MNI India Business Report - February 2014 Latest economic data has provided a ray of hope from the economic gloom that has surrounded India for many months. Consumer price inflation hit a two year low and wholesale price inflation moderated as vegetable prices declined. Moreover, the trade deficit continued to fall helped by higher exports and lower imports of gold and silver. Industrial production, though, has been persistently weak, as manufacturing output contracted for the third consecutive month in December. In spite of the continued weakness in the economy and fall in headline inflation, the Reserve Bank of India hiked its policy rate by 25 basis points to 8% on January 28, citing continued inflationary pressures. Slow economic growth Economic growth increased by 4.8% on the year in the three months to September, up from 4.4% in the previous quarter, although below the 5.2% seen in the same period a year ago. The acceleration in growth may have been due partly to a good monsoon which helped boost agricultural output, while manufacturing activity remained anaemic. Agricultural output rose 4.6% on the year, compared with 2.7% in the previous quarter. Manufacturing posted a 1% increase, up from the 1.2% fall seen in the previous quarter, although only 0.1% above the same period a year earlier. On an expenditure basis, higher exports and a surge in investment were the main drivers of growth, expanding by 16.3% and 2.6% respectively on the year, having both fallen by 1.2% in the three months to June. Private consumption, the largest component of GDP, rose 2.2% in the three months to September compared with a year earlier, up from 1.6% in the three months to June, but down from 3.5% in the same quarter last year. The Finance Minister P.Chidambaram expects the economy will expand 5.2% in the third and fourth quarter of the fiscal year, and 4.9% in 2014. The International Monetary Fund has revised up India‘s growth forecast to 4.4% for the current fiscal year, more than half a percentage point up from October‘s estimate, due to a normal monsoon and improved exports. Industrial outlook shows minor recovery The Reserve Bank’s Industrial Outlook Survey, showed that the Business Expectation Index, a gauge of manufacturing business sentiment, improved marginally in the quarter ending December to 98.8 from 97.3 in the quarter ending September. Expectations for the next quarter ending March rose to 112.7 compared with the previous quarter’s 109.9. Current assessment and expectations sentiment for production, order books, capacity utilisation, exports and imports improved slightly, showing that companies were more optimistic about the demand outlook. Industrial output continued to fall Industrial production contracted for the third consecutive month, falling 0.6% on the year in December. November‘s industrial output was revised up to a 1.3% decline from the previously reported 2.1% decline. Manufacturing output slumped by 1.6% in December compared with a year earlier, although up from a decline of 2.7% in November (revised up from -3.5% previously). Overall, eight out of the 22 industry groups within the manufacturing sector contracted in December, led by Radio, TV and communication equipment & apparatus which posted a fall of 35.7% on the year. This was followed by a 26.1% decline in output for Furniture and a 22.1% fall in Office, accounting & computing machinery. After growing by 1.7% on the year in November, mining output growth slowed to 0.4% in December. Output of consumer durables, a measure of consumer demand, posted the thirteenth consecutive decline, falling 16.2% in December compared with a fall of 21.5% in November. Capital goods output, a proxy for investments in the economy, fell 3% in December compared with a decline of 0.1% in November. 11

MNI India Business Report - February 2014 Industrial Production 250 25% 20% 200 15% 10% 150 5% 0% 100 help to revive consumption and investment in a sustainable way. The RBI, however, said that if retail inflation eases as projected, it does not foresee a need for further monetary policy tightening in the near-term. The RBI expects consumer price inflation to stay above 9% during the final quarter of the fiscal year ending March, before easing to 7.5-8.5% for the quarter that ends in March 2015, with the balance of risks tilted to the upside. -5% RBI Governor Raghuram Rajan made clear that inflation needed to be brought down to a low and stable level, so that monetary policy could eventually 12% 10% 8% 6% 4% 2% Wholesale Price Inflation* Consumer Price Inflation** Source: *Office of the Economic Advisor, India, **MOSPI Dec-13 Oct-13 Aug-13 Jun-13 Apr-13 0% Feb-13 RBI hikes repo rate to 8% The RBI raised the policy rate by 25 basis points to 8% from 7.75% at its January meeting, citing the elevated level of consumer price inflation. Inflation Dec-12 Wholesale price inflation decelerated to an eight month low of 5% in January, down from 6.2% in December. The slowdown was largely driven by vegetable prices that expanded 22% in January, compared with a near 30% rise in December. Consequently, food price inflation eased to 3% in January, half of the 6% outturn seen in December. Fiscal budget deficit The government budget deficit stood at Rs.5.1 trillion ($82 billion) in the April-December period, or 95.2% of the target for the year ending March 2014. Net tax receipts totalled Rs. 6.47 trillion in the first ten months to March 2014, while total expenditure was Rs. 11.64 trillion. Oct-12 Inflation slows as vegetable prices decelerated Consumer price inflation eased to a two year low of 8.8% in January compared with 9.9% in December 2013. Food price inflation, which is almost half of the index, eased to 9.9%, down from 12.2% in December. The moderation was driven by cooling in vegetable prices that rose by 21.9% compared with a year earlier, down from 38.5% in November. Aug-12 Industrial Production Source: Central Statistical Organisation, India Jun-12 Industrial Production y/y % (RHS) A central bank panel set up by the Governor has proposed to revamp its policymaking structure by setting a long-term consumer price inflation target of 4%, plus or minus 2%. As inflation remains high, it recommended that the goal should be phased in gradually. The RBI initially aims CPI to fall to 8% by January 2015 and 6% by January 2016. Apr-12 2013 2012 2011 2010 2009 -10% 2008 50 2007 12

MNI India Business Report - February 2014 The gap in public finances has put the nation’s debt rating at risk, with most credit rating agencies keeping India on alert with a high probability of a downgrade. The government plans to defer some subsidy payments to next year, while focusing on speeding up the sale of stakes in state-run firms and minority stakes in some private companies. The government raised over Rs. 610 billion from selling licenses for the mobile internet spectrum in February. Finance Minister Palaniappan Chidambaram expects the budget gap to fall to a six year low of 4.6% of GDP, below the target of 4.8% for this fiscal year, and down from 4.9% seen in the previous 12 months. He said that there was a need to bring the deficit further down to 3% of GDP in 2016-17. The fiscal deficit for 2014-15 was projected at 4.1% of GDP in the interim budget presented on February 17. Foreign reserves rise Foreign exchange reserves rose to $292.3 billion in the week ending February 7, from $291.1 billion a week earlier. According to the RBI’s weekly statistical supplement, foreign currency assets, the biggest component of the forex reserves, rose by $1.26 billion to $265.8 billion. These are expressed in dollar terms and include the effect of appreciation or depreciation of the non-US currencies such as the euro, pound and yen, held in its reserves. Moves by the RBI have greatly strengthened India’s foreign exchange reserve position, leaving it less vulnerable to another run on the currency. The value of India’s gold reserves remained steady at $20.1 billion. Trade deficit shrinks India’s trade deficit narrowed to $9.9 billion in January, down from a $10.1 billion deficit in December, and almost halving the deficit of $18.9 billion seen in the same period last year. Higher exports and lower imports of gold and silver led the improvement. Exports rose for the seventh straight month in January to $26.8 billion, up 3.8% on the year compared with the 3.5% growth witnessed in December. Imports fell 18.1% on the year to $36.7 billion in January. Oil imports declined to $13.2 billion, lower than the $13.8 billion seen a month earlier and 10.1% below the level in January 2013. Gold and silver imports were down 77% to $1.7 billion compared with $7.5 billion in the same month a year earlier. In 10 months to January, the trade deficit totaled $120 billion, down from $167.8 billion in the same period a year back. The government expects to keep the current account deficit at $45 billion in the fiscal year that ends in March. Car sales decline Passenger car sales declined for the fourth consecutive month in January, to 160,289 units, 7.6% down from a year earlier. Sales of commercial vehicles fell for ninth month in a row by 20.9% compared with a year back. High inflation, rising fuel prices and interest rates have resulted in high cost of ownership, which has impacted the demand for cars. In 2013, car sales declined for the first time in 11 years. Sales of passenger cars dropped by 10% in 2013, down from a 3% growth in 2012. In the interim budget, Finance Minister Palaniappan Chidambaram cut excise duty on small cars, two wheelers, and commercial vehicles to 8% from 12%, providing some relief to the automobile industry. 13

14 Spitzzeile Titel Indicators Business confidence declined in February, although was up compared with a year earlier, suggesting that the worst is over for the Indian economy.

MNI India Business Report - February 2014 58.2 MNI India Business Indicator Business Confidence Declines Business confidence declined in February, although was up compared with a year earlier, suggesting that the worst is over for the Indian economy. The MNI India Business Indicator fell to 58.2 in February from 63.4 in January, a decline of 8.2% on the month. The worsening was led by a fall in business optimism among service sector companies, while conditions remained stable for both manufacturing and construction sector companies. MNI India Business Indicator 80 75 70 65 60 55 50 45 Future expectations have also increased significantly since April, but the acceleration has eased in recent months. Expectations for business conditions in three months’ time slipped to 69.5 in February from 72.0 in January, the lowest since October. The Future Expectations Indicator for construction companies improved to the highest since October. Optimism among manufacturing firms remained at elevated levels and broadly stable from last month. Service sector companies were the least optimistic about the future with the indicator posting a significant decline this month. All three sectors, though, remained well above the breakeven level. Jan-14 Feb-14 Dec-13 Oct-13 Nov-13 Sep-13 Aug-13 Jul-13 Jun-13 Apr-13 May-13 Mar-13 Jan-13 Feb-13 Dec-12 40 Nov-12 Business confidence was hit hard in the first half of 2013 as India faced a potential financial and economic meltdown following fears the US Federal Reserve would taper its bond purchases, which caused widespread panic in emerging markets. Sentiment subsequently recovered and has trended higher since the summer of 2013, although has been broadly stable since September. Current Conditions Future Expectations Nine out of the 15 current conditions indicators included in the report fell in February with seven of them posting the lowest reading since December. For business expectations in the next three months, four indicators fell from the previous month. “We are expecting an improvement in overall business conditions after the elections.” Real Estate Development & Holding company MNI India Business Indicator Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions 53.6 59.4 59.8 64.6 57.8 63.4 58.2 Future Expectations 53.8 77.1 68.8 69.5 71.1 72.0 69.5 15

MNI India Business Report - February 2014 62.0 Production Falls on the Month Following a pick-up in January, Production eased in February, although was still 11.5% higher than last year. The Production Indicator declined to 62.0 in February from 64.4 in January. Production bottomed out last summer and since then has been on a rising trend, averaging 61.6 in the past eight months. The three month trend since August has remained broadly stable around 60. Production 80 75 70 65 60 55 50 45 40 35 Service sector companies reported a significant decline in the Production Indicator while manufacturing companies saw a small fall. For construction sector companies, the Production indicator increased to the highest since August. Jan-14 Current Conditions Future Expectations Industrial Production to Catch Up 70 4% 65 3% 60 2% 55 1% 50 0% 45 -1% 40 Feb-14 Jan-14 Dec-13 Oct-13 Nov-13 Sep-13 Jul-13 Aug-13 Jun-13 -3% May-13 30 Apr-13 -2% Mar-13 35 Jan-13 Companies were also less optimistic about production over the next three months. The Future Expectations Indicator for Production slowed to 69.7 in February, from 71.6 in January. Service sector companies were the least optimistic about the future level of Production as their expectations deteriorated significantly from January to February. In contrast, more manufacturing and construction sector companies expected their production to expand in three months‘ time, with the latter the most optimistic among the three sectors. Feb-14 Dec-13 Nov-13 Oct-13 Sep-13 Jul-13 Aug-13 Jun-13 May-13 Apr-13 Mar-13 Jan-13 Feb-13 Dec-12 30 Nov-12 Latest official data on industrial production showed output fell for the third consecutive month by 0.6% on the year in December, after contracting by 1.3% in November. The narrower measure of manufacturing output fell 1.6% compared with a year earlier following a decline of 2.7% in November. Feb-13 16 Industrial Production y/y % (RHS)* MNI Production *Source: Central Statistical Organisation, India Production Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions 55.6 67.3 57.5 65.3 59.7 64.4 62.0 Future Expectations 49.7 76.8 64.8 68.8 66.2 71.6 69.7

MNI India Business Report - February 2014 62.3 New Orders Lowest Since December Expectations for New Orders in three months‘ time rose to 67.2, having remained flat at 65.5 last month. The increase was led by was led by more manufacturing and construction sector companies that expected demand to increase in three months‘ time. Optimism among service sector companies declined slightly. 80 70 60 50 40 Jan-14 Feb-14 Dec-13 Oct-13 Nov-13 Sep-13 Aug-13 Jul-13 Jun-13 Apr-13 May-13 Mar-13 Jan-13 30 Feb-13 The New Orders Indicator for manufacturing sector companies increased to the highest since September, while for service sector companies it declined, having remained broadly stable for the previous three months. 90 Dec-12 The three month trend in New Orders has been reasonably stable over the past six months, with the indicator hovering around 60. It eased slightly to 62.1 in February compared with 62.3 in January. New Orders Nov-12 The New Orders Indicator declined 2% on the month to 62.3 in February from 63.6 in January, led by fewer construction and service sector companies reporting higher new orders. Current Conditions Future Expectations “There are three big orders with our company this month.” Heavy construction company New Orders Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions 55.8 69.1 59.5 62.9 60.3 63.6 62.3 Future Expectations 53.2 78.5 69.5 68.5 65.4 65.5 67.2 17

MNI India Business Report - February 2014 59.8 Export Orders Lowest Since November Export Orders have trended upwards since April last year and a decline in February ended three months of successive rises. The Export Indicators indicator fell to 59.8 in February from 61.4 in January, the lowest since November. Export Orders 80 75 70 65 60 55 50 45 40 35 Expectations for three months’ time rose sharply from 62.9 in January to 68.2 in February, nearly recouping all of the fall seen in January. Construction sector companies were highly optimistic about future Export Orders with the indicator increasing significantly above the 50 breakeven mark. Manufacturing and services companies’ expectations about future external demand also improved, though by a smaller extent. Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 May-13 Feb-13 The depreciation of the Rupee increased the competitiveness of Indian exports in 2013, although rising input costs have offset much of this gain for a lot of companies. Apr-13 30 Mar-13 The decline was led by the service sector as the number of companies whose exports orders were up almost halved compared with the previous month. Manufacturing and construction sector companies reported higher export orders, with the latter the most optimistic among the three sectors. Current Conditions Future Expectations Export Orders Movement 32 70 30 60 28 50 26 40 24 30 22 Feb-14 Dec-13 Oct-13 Aug-13 Jun-13 20 Apr-13 20 Feb-13 18 MNI Export Orders (RHS) Exports,FOB, USD B* *Source: Indian Ministry of Commerce and Industry Export Orders Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions 53.7 63.2 55.6 58.8 60.5 61.4 59.8 Future Expectations 56.0 75.5 57.7 60.8 67.9 62.9 68.2

MNI India Business Report - February 2014 56.1 Productive Capacity Eases Slightly Following a sharp rise in the previous month, the Productive Capacity Indicator fell back a little to 56.1 in February from 58.0 in January. The Productive Capacity Indicator has been above the 50 breakeven mark since May, and after rising to a record high in September, it has been on a downward trend. Productive Capacity 75 70 65 60 55 50 45 Companies’ expectations about the next three months also declined, with the Future Expectations Indicator falling by 6.7% on the month to 60.0 in February from 64.3 in January. The indicator for construction sector companies increased, while it declined for both services and manufacturing sector companies. 40 35 Jan-14 Feb-14 Dec-13 Oct-13 Nov-13 Sep-13 Aug-13 Jul-13 Jun-13 Apr-13 May-13 Mar-13 Jan-13 Feb-13 Dec-12 30 Nov-12 Productive Capacity improved significantly for the construction sector, pushing the indicator well into expansion territory. There were declines in both the manufacturing and service sectors, with the latter falling into contraction. Current Conditions Future Expectations “Our company is operating at its optimum capacity.” Containers & Packaging company Productive Capacity Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions 56.5 64.0 58.1 61.3 51.3 58.0 56.1 Future Expectations 56.1 70.3 65.1 65.2 57.5 64.3 60.0 19

20 Spitzzeile Titel w Companies’ expectations about employment hit a record high in February. The Employment Expectations Indicator increased by 7.7% to 57.5 in February from 53.4 in the previous month.

MNI India Business Report - February 2014 39.8 Order Backlogs Rise Markedly Order Backlogs have fallen sharply over the past year as the economy has slowed considerably, although recovered partially in February from a record low in January. The indicator accelerated to 39.8 in February, up from 35.6 in January. The downturn in the economy seen in recent years has increased the output gap, leaving it with a greater amount of spare capacity, so many companies are able to quickly turnaround incoming orders. Order Backlogs 65 60 55 50 45 40 35 30 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 May-13 More companies expected higher order backlogs over the next three months in anticipation of higher orders. The Future Expectations Indicator increased to 40.1 compared with 35.2 in January. Apr-13 25 Current Conditions Future Expectations Manufacturing and construction sector companies expected an increase in their backlogs over the coming three months, while the indicator for service sector companies slumped. The Expectations Indicators remained below the 50 breakeven mark for all three sectors. “There are no pending orders.” Consumer goods manufacturing company Order Backlogs Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions - 52.9 42.9 45.3 41.7 35.6 39.8 Future Expectations - 57.5 43.4 48.8 43.7 35.2 40.1 21

MNI India Business Report - February 2014 Employment Future Expectations Hit a Record High Companies’ expectations about future employment hit a record high in February due to a considerable rise in the number of companies that expected that they will need to take on more employees in the next three months. The Expectations Indicator increased to 57.5 in February from 53.4 in the previous month. Construction sector companies were the most optimistic about hiring in the next three months, while there were smaller gains for manufacturing and service sector companies. 60 58 56 54 52 50 48 46 44 42 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 40 Jun-13 Between January and February, the Employment Indicator fell from 51.8 to 50.8, as the indicator for manufacturing companies fell into contraction. There was also a fall among service sector companies, while construction companies were more optimistic about raising employment, with the indicator posting the third consecutive increase. Employment May-13 The Employment indicator asks companies whether they have an adequate number of employees and although the majority of companies continued to say that the number of employees they had was “just right”, there was a rise in those who said they had “too many” employees. 50.8 Apr-13 22 Current Conditions Future Expectations “Our company will recruit more employees in the coming months.” Electrical component and equipment company Employment Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions - 53.3 51.3 48.9 Future Expectations - 53.4 51.1 49.5 50.0 51.8 50.8 52.2 53.4 57.5

MNI India Business Report - February 2014 64.9 Inventories At Series High The Inventory level of Finished Goods Indicator accelerated further to a new series high of 64.9 compared with 62.1 in January. After dropping to the 50 mark in October and November, the Inventory Indicator has risen strongly. Construction companies’ inventories rose to the highest since September while there was a slight increase among manufacturing companies. Inventories 70 65 60 55 50 45 40 35 30 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 May-13 25 Apr-13 Future Expectations for the next three months declined significantly to 53.5 in February from 59.5 in January, the first fall in four months. Between January and February, more construction companies expected their inventories to fall. Manufacturing companies also saw a fall in the Expectations Indicator, but by a smaller degree. Current Conditions Future Expectations Inventories Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions - 60.1 50.0 50.0 53.1 62.1 64.9 Future Expectations - 53.7 50.7 53.3 54.6 59.5 53.5 23

MNI India Business Report - February 2014 73.0 Input Prices Highest Since November Many companies continued to complain about the high rate of inflation that was adding to their costs as Input Prices rose to the highest since November, having eased for the previous two months. The Input Price Indicator increased to 73.0 in February from 69.8 in January led by more services and manufacturing firms reporting higher input prices compared with a month ago. Construction companies saw a decline in the Input Price Indicator to the lowest level since July. Input Prices 85 80 75 70 65 60 55 50 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 Expectations for three months’ time accelerated to 72.0 in February, up from 69.9 in the previous month, driven by a rise in expectations among manufacturing and service sector companies. The expectations indicator for construction companies remained broadly stable at a relatively high level. May-13 45 Apr-13 24 Current Conditions Future Expectations “Raw materials have become Containers & Packaging company costly.” Input Prices Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions - 74.1 63.3 73.0 71.8 69.8 73.0 Future Expectations - 72.9 65.3 72.5 66.4 69.9 72.0

MNI India Business Report - February 2014 56.2 Prices Received Lowest Since October The Prices Received Indicator fell to 56.2 in February from 60.6 in January, the lowest level since October, although still at a relatively high level. Prices Received 80 75 The trend in the Prices Received Indicator over the past year has been closely matched by the official inflation data. Latest data showed that wholesale price inflation eased to 5% in January from 6.2% in December. 70 65 60 55 50 45 40 35 Jan-14 Feb-14 Dec-13 Oct-13 Nov-13 Sep-13 Aug-13 Jul-13 Jun-13 Apr-13 May-13 Mar-13 Jan-13 Feb-13 Dec-12 30 Nov-12 Construction sector companies reported a rise in the Prices Received Indicator for the second consecutive month, while the service sector witnessed a fall. Manufacturing companies reported a broadly flat Prices Received indicator compared with last month. Current Conditions Expectations for Prices Received in three months’ time remained broadly stable at 61.2 compared with January’s 60.9. Between January and February, more manufacturing and construction sector companies expected the prices they charge for their goods to rise in the coming months. In contrast, many service sector companies highlighted that it was a highly competitive market and expected to see a decline in prices charged to win over customers. Future Expectations Prices Received and Wholesale Price Inflation 70 9% 8% 60 7% 50 6% 5% 40 4% Jan-14 Nov-13 Sep-13 Jul-13 Jan-13 May-13 3% Mar-13 30 MNI Prices Received Wholesale Price Inflation y/y % (RHS)* *Source: Office of the Economic Advisor, India Prices Received Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions 59.8 61.8 54.9 60.8 58.0 60.6 56.2 Future Expectations 55.8 67.0 57.3 63.8 56.0 60.9 61.2 25

MNI India Business Report - February 2014 69.3 Financial Position Rises Further Companies were even more optimistic about their financial position in the coming three months as the Expectations Indicator jumped 8% to 77.2 in February, from 71.5 in the previous month. The Future Expectations Indicator for all three sectors increased in February with optimism among manufacturing firms the highest in eight months. 85 80 75 70 65 60 55 50 Jan-14 Feb-14 Dec-13 Oct-13 Nov-13 Sep-13 Jul-13 Aug-13 Jun-13 Apr-13 May-13 Mar-13 45 Jan-13 The BSE benchmark Sensex rose 170 points to a nearly three week high of 20,634.21 on February 18 driven by gains in banking, capital goods and auto shares following proposed excise duty cuts in the interim budget that cheered investors. 90 Feb-13 Between January and February, more manufacturing companies reported an improvement in their financial situation while the indicator for services companies was broadly flat. More construction sector companies reported their financial position worsened, although the indicator remained well above the 50 breakeven mark. Financial Position Dec-12 The Financial Position Indicator rose to 69.3 in February from 68.2 in January, the highest since November and well above the 56.3 posted in the same month a year earlier. Nov-12 26 Current Conditions Future Expectations “The company’s situation is good in terms of finance and business, however due to an increase in the cost of raw materials there is less profitability now.” Speciality chemicals manufacturing company Financial Position Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions 56.3 72.3 58.6 69.9 65.2 68.2 69.3 Future Expectations 51.6 83.3 71.1 74.2 71.3 71.5 77.2

MNI India Business Report - February 2014 67.3 Interest Rates Paid Double Digit Hike The Interest Rates Paid Indicator rose across all sectors, of which manufacturing companies witnessed the largest hike as the proportion of those who reported that they paid higher interest rates compared with last month increased significantly. The RBI raised the policy rate by 25 basis points to 8% from 7.75% at its January meeting, citing the elevated level of consumer price inflation. This was the third rise in policy rates since Raghuram Rajan took over the central bank governor in September 2013. The increase would directly impact the equated monthly instalments (EMIs) on home, automobile and other loans. 75 70 65 60 55 50 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 May-13 Apr-13 45 Mar-13 The Interest Rates Paid Indicator increased to 67.3 from 60.5 in January as more companies reported that they paid higher interest rates compared with the previous month. While in January, 27.5% of companies surveyed reported higher credit costs, in February this increased to 41.2%. In contrast, the percentage of companies who reported they faced the same interest rates fell from 66% in January to 52.2% in February. Interest Rates Paid Feb-13 The decline in interest costs paid by companies over the past two months was reversed in February following a hike in official rates by the Reserve Bank of India. Current Conditions Future Expectations Between January and February, more manufacturing and construction companies expected to face higher credit costs in the next three months, with the Interest Rates Paid Indicator climbing back into expansion territory for the former. Service sector companies expected Interest Rates Paid to decline in the coming months as the proportion of companies who said interest rates would fall increased, though the majority continued to say they would remain the same. Expectations for Interest Rates Paid in three months’ time remained at inflated levels from June to November and have subsequently fallen. The Expectations Indicator, thought, picked up to 60.7 in February from 57.9 in the previous month. Interest Rates Paid Feb-13 Current Conditions Future Expectations Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 69.2 68.4 - 65.2 Feb-14 60.3 73.2 69.2 60.5 67.3 65.9 69.6 56.8 57.9 60.7 27

28 Spitzzeile Titel w More companies reported that they paid higher interest rates in February. The RBI raised the policy rate by 25 basis points to 8% from 7.75% in late January.

MNI India Business Report - February 2014 44.2 Effect of Rupee Exchange Rate Stable Below 50 The Effect of the Rupee Exchange Rate Indicator remained broadly flat at 44.2 in February compared with 44.3 in the previous month as companies continued to report that the current level of the rupee was hurting their business. Businesses are asked whether the exchange rate is helping or hurting their company and a value above 50 shows more firms reported that it was helping, while a reading below 50 shows the exchange rate was hurting. Effect of Rupee Exchange Rate 90 80 70 60 50 40 30 Expectations for three months’ time increased in February after remaining relatively stable last month. The Future Expectations Indicator rose to 45.2, the highest since July and up from 43.6 in January. Jan-14 Feb-14 Dec-13 Oct-13 Nov-13 Sep-13 Jul-13 Aug-13 Jun-13 Apr-13 May-13 Feb-13 Mar-13 Jan-13 Dec-12 The indicator has moved sharply over the past year in line with the gyrations in the exchange rate. In February 2013, the indicator stood at a record high of 77.8 showing businesses were benefitting from the rupee. The indicator fell into contraction in July, before hitting a record low in October and has since partially recovered in line with the recovery in the rupee, although has remained below 50. Nov-12 20 Current Conditions Future Expectations Exchange Rate 90 0.019 80 0.018 70 60 0.017 50 40 0.016 30 20 0.015 10 Jan-14 Nov-13 Sep-13 Jul-13 May-13 Mar-13 0.014 Jan-13 0 MNI Effect of Rupee Exchange Rate US Dollar versus Indian Rupee* *Source: Reserve Bank of India Effect of Rupee Exchange Rate Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions 77.8 31.6 30.9 43.4 39.4 44.3 44.2 Future Expectations 75.5 32.7 30.1 43.5 43.2 43.6 45.2 29

MNI India Business Report - February 2014 55.6 Supplier Delivery Times Highest Since September 60 55 50 45 40 35 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 30 Jul-13 Supplier Delivery Times were expected to lengthen in next three months, with the indicator increasing significantly from 51.7 in January to 56.2 in February, the highest since May 2013. The increase was led by manufacturing and service sector companies, with the former rising the most. The Supplier Delivery Times indicator for construction sector companies fell to the breakeven 50 level. 65 Jun-13 Construction sector companies reported a lengthening in supplier delivery times to the highest since July last year. Manufacturing companies posted a small increase while service sector companies’ supplier delivery times were broadly stable compared with last month. Supplier Delivery Times May-13 Supplier Delivery Times have steadily lengthened since October and they rose to 55.6 in February from 54.4 in the previous month. Apr-13 30 Current Conditions Future Expectations “Our supplier’s delivery time is stable.” General mining company Supplier Delivery Times Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions - 58.4 52.7 52.9 54.2 54.4 55.6 Future Expectations - 56.1 54.6 55.0 54.2 51.7 56.2

MNI India Business Report - February 2014 54.9 Availability of Credit Tightens on the month 65 60 55 50 45 40 35 Jan-14 Feb-14 Dec-13 Oct-13 Nov-13 Sep-13 Aug-13 Jul-13 Jun-13 Apr-13 May-13 Mar-13 Jan-13 30 Feb-13 Businesses expected credit availability to improve slightly in the next three months as the indicator increased to 54.8 in February from 54.1 in the previous month. 70 Dec-12 Service sector companies registered a considerable decline in credit availability, with the indicator falling below the breakeven level, while manufacturing and construction sector companies showed an improvement. Availability of Credit Nov-12 The indicator measuring the Availability of Credit fell from 56.8 in January to 54.9, a decline of 3.3% on the month. The indicator has remained broadly stable since last year, averaging 53.1 in the past twelve months. Current Conditions Future Expectations Construction companies, which were the least optimistic about future credit conditions last month, had a positive outlook for the next three months. Manufacturing companies also expected credit conditions to improve, with the indicator increasing to the highest since last September. In contrast, service sector companies were the least optimistic with the expectations indicator falling to the breakeven level. “There is no liquidity or credit availability in the market.” Speciality finance company Availability of Credit Feb-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Current Conditions 57.1 Future Expectations 57.6 61.9 51.3 55.7 52.6 56.8 54.9 65.3 56.6 59.2 58.8 54.1 54.8 31

32 Spitzzeile Titel What the Panel Said A selection of comments from the panel of businesses surveyed over the past month.

MNI India Business Report - February 2014 “It is the peak season for business and more orders are coming.” Pharmaceutical Company “People are investing money in fixed return sources due to instability of market.” Investment Services Company “Our company has lots of new orders.” Transportation Service Company “The company’s situation is good in terms of finance and business, however due to the increase in the cost of raw materials there is less profitability.” Chemicals Manufacturing Company “The entertainment business is running successfully.” Entertainment Services Company “Our supplier’s delivery time is stable.” General Mining Company “We are expecting an improvement in overall business conditions after elections.” Real Estate Development & Holding Company “The business condition is better because of wedding season that ends in March, after which it is expected to slow down.” Hotel “We are looking forward to positive growth in business in the coming months.” Investment Services Company “There is too much competition in the market and customers are very sensitive about prices, so we cannot increase the prices of our products.” Financial Services Company “We are not hiring any new people.” Real Estate Development & Holding Company “The company’s order book is full.” Containers & Packaging Company “Raw materials have become costly.” Containers & Packaging Company “Interest rates have increased but banks are not pushing higher interest costs on to customers.” Speciality Finance Company “Credit is available only to some big players and those who have high goodwill.” Leasing & Finance Company “There are no pending orders.” Consumer Goods Manufacturing Company “The vendor’s delivery time has declined.” Financial Services Company “Our company is operating at its optimum capacity.” Containers & Packaging Company “The raw material costs are high.” General Mining Company “Our company’s business condition depends on the country’s real estate situation and from last few months, it has remained stable.” Furnishings Company “Input prices are higher because of pricy imports.” Containers & Packaging Company “Our company will recruit more employees in the coming months.” Electrical Component and Equipment Company “There are three big orders with our company this month.” Heavy Construction Company “There is no liquidity or credit availability in the market‘.” Speciality Finance Company 33

38 MNI India Business Report - February 2014 Methodology MNI India Business Sentiment is a monthly poll of Indian business executives at companies listed on BSE (formerly known as the Bombay Stock Exchange). Companies are a mix of manufacturing, service, construction and agricultural firms. Respondents are asked their opinion on whether a particular business activity has increased, decreased or remained the same compared with the previous month as well as their expectations for three months ahead, e.g. Is Production Higher/Same/Lower compared with a month ago? A diffusion indicator is then calculated by adding the percentage share of positive responses to half the percentage of those respondents reporting no change. An indicator reading above 50 shows expansion, below 50 indicates contraction and a result of 50 means no change. Data is collected via telephone interviews. Around 200 companies are surveyed each month.

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